Opinion: U.S. Stock Market Still a Good Bet Despite Trade Worries

Trade War? What trade war?

Remember all the investor concern about the potential trade dispute with China and some European countries?

Market instability during the first quarter has been directly related to investor concern about the worldwide economic fallout from the imposition of tariffs and other threatened trade restrictions.

The market was particularly sensitive to any proclamations made by President Trump published via Twitter or through other media. China threatened retaliatory measures, only to be followed by more rancorous talk from Washington.

Some analysts believe all the bravado is mere posturing by the parties and that in the end, a mutually beneficial accord or agreement will be reached.

One analyst who adopts this position is Monty Guild of Guild Investment Management.

“U.S. trade policy will produce results; over the summer there will be volatility, and eventually, progress,” noted Guild in a summer strategy note to clients.

The reason?

“Because a real trade war would be negative for everyone, and the world — which runs an $800 billion annual trade surplus with the U.S.— will be more than happy to maintain a $500 billion trade surplus,” Guild wrote.

In response to Trump’s criticism of the trade imbalance with China, that country has made some initial modest concessions.

One is an agreement to purchase nearly $70 billion of U.S. farm, heavy manufacturing and energy products — if the Trump administration rescinds his threat of tariffs

Strong earnings

Many investors have viewed China’s offer as a stabilizing event that will help cool the rhetoric.

This has greatly eased investor concern manifested in the reduction in market gyrations that occurred earlier in the year when not a kind word was spoken between the U.S. and China.

Despite the trade spat and other geopolitical tensions around the world, many analysts believe U.S. stocks are still a safe bet.

They subscribe to the view that the overreaction to the potential of tariffs and retaliatory measures was exaggerated overshadowing solid profits posted by major U.S. corporations

Many corporations reported strong earnings growth for the first quarter and the U.S. economy shows no signs of slowing.

Indeed, an unemployment rate of 3.8% has only occurred twice in the past, in 2000 and 1960.

Some investors are overreacting to all the posturing, heading for the exits every time Trump sends a pugnacious Twitter barb.

Timid market participants should instead focus on the underlying fundamentals of the economy and the prospect for future corporate profits in an economy that has not cooled down.

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